UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





FORM 10-Q





[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT OF 1934





For the quarterly period ended:  April 30, 2010





[   ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT OF 1934





For the transition period from ___________________________  to ______________________________





Commission File Number:  0-11088





TAMIR BIOTECHNOLOGY, INC.


(Exact name of registrant as specified in its charter)




Delaware



22-2369085(State or other jurisdiction of



(I.R.S. Employer Identification No.)organization)  300 Atrium Drive, Somerset, NJ 08873(Address of principal executive offices)    (Zip Code)
  (732) 652-4525(Registrant’s telephone number, including area code)  ALFACELL CORPORATION(Former name, former address, and former fiscal year, if changed since last report.)


Indicate by check mark whether the registrant has (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes [X]   No [   ]




Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files). Yes [   ] No [   ]










Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See definitions of  “large accelerated filer,” “accelerated filer” and “smaller reporting company”:  in Rule 12b-2 of the Exchange Act.   Large Accelerated Filer [   ]    Accelerated Filer [   ]  Non-accelerated Filer [   ] Smaller Reporting Company [X]





Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes [   ]     No [X]





The number of shares of Common Stock, $.001 par value, outstanding as of June 10, 2010was 47,313,880 shares.




2





TAMIR BIOTECHNOLOGY, INC.


(A Development Stage Company)





FORM 10-Q





INDEX




Part I.  Financial InformationItem 1.
Financial StatementsCondensed Balance Sheets
4Condensed Statements of Operations
5Condensed Statement of Stockholders’ Deficiency
6Condensed Statements of Cash Flows
7Notes to Condensed Financial Statements
10Item 2.
Management’s Discussion and Analysis of Financial Conditonand Results of Operations
21Item 3.
Quantitative and Qualitative Disclosures About Market Risk
28Item 4.
Controls and Procedures
28Part II.  Other InformationItem 1.
Legal Procedings
29Item 1A.
Risk Factors
29Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
31Item 3.
Defaults Upon Senior Securities
31Item 4.
Reserved
31Item 5.
Other Information
32Item 6.
Exhibits
32Signature Page

33




3




PART I.  FINANCIAL INFORMATION


Item 1.  Financial Statements





TAMIR BIOTECHNOLOGY, INC.


(A Development Stage Company)





CONDENSED BALANCE SHEETS


April 30, 2010 and July 31, 2009





April 30,

2010

(Unaudited)


July 31,

2009

(See Note 1)ASSETSCurrent assets:Cash and cash equivalents

$
671,369


$
129,194Prepaid expenses


113,570



54,494Restricted cash


1,600,293



–Total current assets


2,385,232



183,688Property and equipment, net of accumulated depreciation and amortization of $374,757 at April 30, 2010 and $377,134 at July 31, 2009


36,272



108,018Restricted cash


–



266,280Deferred financing cost


123,383



–Total assets

$
2,544,887


$
557,986LIABILITIES AND STOCKHOLDERS’ DEFICIENCYCurrent liabilities:Accounts payable

$
332,070


$
407,273Accrued clinical trial expenses


431,246



459,911Accrued professional service fees


358,095



350,486Accrued compensation expense


176,480



207,245Derivative liability


16,051,398



-Current portion of obligations under capital lease


5,067



4,299Other accrued expenses


13,315



2,890Total current liabilities


17,367,671



1,432,104Other liabilities:Accounts payable, net of current portion


444,223



444,223Obligations under capital lease, net of current portion


8,738



12,641Accrued retirement benefits, net of current portion


231,250



335,250Convertible debt, less debt discount of $2,683,105


566,895



-Accrued interest, convertible debt (related party, $32,807)


85,034



-Deferred rent


13,934



284,134Deferred revenue


5,200,000



5,200,000Total other liabilities


6,550,074



6,276,248Total liabilities


23,917,745



7,708,352Commitments and contingenciesStockholders’ deficiency:Preferred stock, $.001 par value.  Authorized and unissued, 1,000,000 shares at April 30, 2010 and  July 31, 2009


–



–Common stock $.001 par value.  Authorized 250,000,000 shares at April 30, 2010 and 100,000,000 shares at July 31, 2009; issued and outstanding 47,313,880 shares at April 30, 2010 and July 31, 2009


47,314



47,314Capital in excess of par value


101,371,741



101,734,572Deficit accumulated during development stage


(122,791,913
)


(108,932,252
)Total stockholders’ deficiency


(21,372,858
)


(7,150,366
)Total liabilities and stockholders’ deficiency

$
2,544,887


$
557,986





See accompanying notes to condensed financial statements.




4




TAMIR BIOTECHNOLOGY, INC.
 (A Development Stage Company)





CONDENSED STATEMENTS OF OPERATIONS





Three and nine months ended April 30, 2010 and 2009,


and the Period from August 24, 1981


(Date of Inception) to April 30, 2010





(Unaudited)





Three Months Ended

April 30,


Nine Months Ended

April 30,


August 24, 1981(Date of Inception)to2010


2009


2010


2009


April 30, 2010Sales

$
-


$
-


$
18,750


$
-


$
572,239Operating expenses:Cost of sales


-



-



-



-



336,495Research and development


133,658



361,766



416,313



3,187,000



72,998,193General and administrative


411,069



333,949



1,238,756



2,127,658



42,202,645Total operating expenses


544,727



695,715



1,655,069



5,314,658



115,537,333Loss from operations


(544,727
)


(695,715
)


(1,636,319
)


(5,314,658
)


(114,965,094
)Investment income


225



1,000



893



25,083



2,302,974Other income


-



-



-



-



99,939Interest:Related parties, net


(15,356
)


-



(32,807
)


-



(1,180,354
)Debt discount and fair value adjustment –  derivative security


(6,961,822
)


-



(12,757,208
)


-



(12,757,208
)Others


(36,774
)


(1,021
)


(80,869
)


(3,202
)


(2,964,075
)Loss before state tax benefit


(7,558,454
)


(695,736
)


(14,506,310
)


(5,292,777
)


(129,463,818
)State tax benefit


646,649



-



646,649



1,139,867



6,671,905Net loss

$
(6,911,805
)

$
(695,736
)

$
(13,859,661
)

$
(4,152,910
)

$
(122,791,913
)Loss per common share – basic and diluted

$
( 0.15
)

$
(0.01
)

$
(0.29
)

$
(0.09
)Weighted average number of sharesoutstanding


47,313,880



47,313,880



47,313,880



47,312,744
  See accompanying notes to condensed financial statements.





5




TAMIR BIOTECHNOLOGY, INC.
 (A Development Stage Company)





CONDENSED STATEMENT OF STOCKHOLDERS' DEFICIENCY




Period from July 31, 2009 to April 30, 2010




(Unaudited)




DeficitCommon Stock





AccumulatedCapital In


During


TotalNumber of





Excess of par


Development


Stockholders’Shares


Amount


Value


Stage


DeficiencyBalance at July 31, 2009


47,313,880


$
47,314


$
101,734,572


$
(108,932,252
)

$
(7,150,366
)Stock-based compensation


—



—



248,254



—



248,254Derivative liability


—



—



(611,085
)


—



(611,085
)Net loss


—



—



—



(13,859,661
)


(13,859,661
)Balance at April 30, 2010


47,313,880


$
47,314


$
101,371,741


$
(122,791,913
)

$
(21,372,858
)
  See accompanying notes to condensed financial statements.





6





TAMIR BIOTECHNOLOGY, INC.
 (A Development Stage Company)


CONDENSED STATEMENTS OF CASH FLOWS





Nine months ended April 30, 2010 and 2009,


and the Period from August 24, 1981


(Date of Inception) to April 30, 2010





(Unaudited)


Nine Months Ended

April 30,


August 24, 1981

(Date of Inception)

to2010


2009


April 30, 2010Cash flows used in operating activities:Net loss

$
(13,859,661
)

$
(4,152,910
)

$
(122,791,913
)Adjustments to reconcile net loss to net cash used in operating activities:Gain on sale of marketable equity securities


-



-



(25,963
)Depreciation and amortization


74,494



26,977



1,820,088Loss on disposal of property and equipment


-



-



18,926Loss on lease termination


-



-



30,964Share-based compensation


248,254



842,990



14,112,186(Decrease) increase in deferred rent


(270,200
)


18,952



(84,030
)Amortization of debt discount


566,895



-



1,161,114Fair value of derivative liability


12,190,313



-



12,190,313Amortization of deferred financing cost


24,327



-



24,327Amortization of deferred compensation


-



-



11,442,000Changes in assets and liabilities:Decrease (increase)  in prepaid expenses


(59,076
)


80,216



(173,437
)Decrease in loan receivable, related party


-



-



96,051Increase in restricted cash


(1,334,013
)


-



(1,600,293
)Increase in interest payable-related party


32,807



-



777,346(Decrease) increase in accounts payable


(75,203
)


(263,097
)


1,282,928Increase in accrued payroll and expenses, related parties


-



-



2,348,145(Decrease) increase in accrued retirement benefits


(143,442
)


(500
)


374,250Increase (decrease) in accrued expenses


50,273



(578,499
)


1,607,246Increase in deferred revenue


-



-



5,200,000Net cash used in operating activities


(2,554,232
)


(4,025,871
)


(72,189,752
)Cash flows used in investing activities:Purchase of marketable equity securities


-



-



(290,420
)Purchase of short-term investments


-



-



(1,993,644
)Proceeds from sale of marketable equity securities


-



-



316,383Proceeds from sale of short-term investments


-



-



1,993,644Capital expenditures


(2,748
)


-



(1,607,814
)Patent costs


-



-



(97,841
)Net cash used in investing activities


(2,748
)


-



(1,679,692
)


(continued)


See accompanying notes to condensed financial statements.




7




TAMIR BIOTECHNOLOGY, INC.
 (A Development Stage Company)




CONDENSED STATEMENTS OF CASH FLOWS, Continued





Nine months ended April 30, 2010 and 2009,


and the Period from August 24, 1981


(Date of Inception) to April 30, 2010





(Unaudited)


Nine Months Ended

April 30,


August 24, 1981

(Date of Inception) to2010


2009


April 30, 2010Cash flows from financing activities:Proceeds from short-term borrowings

$
-


$
-


$
874,500Payment of short-term borrowings


-



-



(653,500
)Increase in loans payable - related party, net


-



-



2,628,868Proceeds from bank debt and other long-term debt, net ofcosts


-



-



3,667,460Reduction of bank debt and long-term debt


-



-



(2,966,568
)Increase in deferred financing cost


(147,710
)


-



(147,710
)Payment of capital lease obligation


(3,135
)


(2,517
)


(9,973
)Proceeds from issuance of common stock, net


-



-



53,102,893Proceeds from exercise of stock options and warrants, net


-



13,220



14,080,850Proceeds from issuance of convertible debentures, related party


3,250,000



-



3,547,000Proceeds from issuance of convertible debentures, unrelated party


-



-



416,993Net cash  provided by financing activities


3,099,155



10,703



74,540,813Net increase (decrease) in cash and cash equivalents


542,175



(4,015,168
)


671,369Cash and cash equivalents at beginning of period


129,194



4,661,656



-Cash and cash equivalents at end of period

$
671,369


$
646,488


$
671,369Supplemental disclosure of cash flow information – interest paid

$
4,316


$
3,202


$
1,727,576Noncash financing activities:Issuance of convertible subordinated debenture for loan payable to officer

$
-


$
-


$
2,725,000Issuance of common stock upon the conversion of convertible subordinated debentures, related party

$
-


$
-


$
3,242,000Conversion of short-term borrowings to common stock

$
-


$
-


$
226,000Conversion of accrued interest, payroll and expenses by related parties to stock options

$
-


$
-


$
3,194,969Repurchase of stock options from related party

$
-


$
-


$
(198,417
)Conversion of accrued interest to stock options

$
-


$
-


$
142,441Conversion of accounts payable to common stock

$
-


$
-


$
506,725


(continued)


See accompanying notes to condensed financial statements.




8




TAMIR BIOTECHNOLOGY, INC.
 (A Development Stage Company)





CONDENSED STATEMENTS OF CASH FLOWS, Concluded





Nine months ended April 30, 2010 and 2009,


and the Period from August 24, 1981


(Date of Inception) to April 30, 2010





(Unaudited)





Nine Months Ended

April 30,


August 24, 1981

(Date of Inception) to2010


2009


April 30, 2010Conversion of notes payable, bank and accrued interest to long-term debt

$
-


$
-


$
1,699,072Conversion of loans and interest payable, related party and accrued payroll and expenses, related parties to long-termaccrued payroll and other, related party

$
-


$
-


$
1,863,514Issuance of common stock upon the conversion of convertible subordinated debentures, other

$
-


$
-


$
1,584,364Issuance of common stock for services rendered

$
-


$
-


$
2,460Lease incentive allowance

$
-


$
-


$
67,000Derivative liability – warrant reclassification

$
611,085


$
-


$
611,085Issuance of warrants with notes payable

$
-


$
-


$
594,219Acquisition of equipment through capital lease obligation

$
-


$
-


$
23,778  See accompanying notes to condensed financial statements.





9





TAMIR BIOTECHNOLOGY, INC.
 (A Development Stage Company)





NOTES TO CONDENSED FINANCIAL STATEMENTS





(Unaudited)





1.           ORGANIZATION AND BASIS OF PRESENTATION




In the opinion of management, the accompanying unaudited condensed financial statements of Tamir Biotechnology, Inc. (formerly Alfacell Corporation) (“Tamir” or the “Company”) have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.  Accordingly, they do not contain all of the information and notes required by U.S. GAAP for complete financial statements.  In the opinion of  management, the accompanying unaudited condensed interim financial statements contain all adjustments (consisting of normal recurring adjustments) necessary to present fairly the Company’s financial position as of April 30, 2010, the results of its operations for the three and nine months ended April 30, 2010 and 2009, and the period from August 24, 1981 (date of inception) to April 30, 2010, the changes in stockholders’ deficiency for the nine months ended April 30, 2010, and its cash flows for the nine month periods ended April 30, 2010 and 2009, and the period from August 24, 1981 (date of inception) to April 30, 2010.  The results of operations for the three and nine months ended April 30, 2010 are not necessarily indicative of operating results for fiscal year 2010 or future interim periods.  The July 31, 2009 balance sheet presented herein has been derived from the audited financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2009, filed with the Securities and Exchange Commission.




Certain footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted in accordance with the rules and regulations of the Securities and Exchange Commission.  The condensed financial statements in this report should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2009.





Financial instruments consist primarily of cash and cash equivalents and accounts payable.  The carrying value of these financial instruments approximates fair value due to the relative short term nature of these investments and the carrying value of the convertible debt approximates their fair value.





The Company evaluated all events or transactions that occurred after April 30, 2010 through the date the financial statements were issued.





The Company is a development stage company as defined in the Accounting Standards Codification (“ASC”) “Development Stage Entities.”  The Company is devoting substantially all of its present efforts to establishing its business.  Its planned principal operations have not commenced and, accordingly, no significant revenue has been derived therefrom.




The Company is continuing to develop its drug product candidates, which require substantial capital for research, product development, and market development activities.  The Company has not yet initiated marketing of a commercial drug product. Future product development will require clinical testing, regulatory approval, and substantial additional investment prior to commercialization.  The future success of the Company is dependent on its ability to make progress in the development of its drug product candidates and, ultimately, upon its ability to attain future profitable operations through the successful manufacturing and marketing of those drug product candidates.  There can be no assurance that the Company will be able to obtain the necessary financing or regulatory approvals to be able to successfully develop, manufacture, and market its products, or attain successful future operations.  Accordingly, the Company’s future success is uncertain.




10





2.           LIQUIDITY





The Company has reported net losses of approximately $6,912,000 and $13,860,000 for the three and nine months ended April 30, 2010, and $4,539,000, $12,321,000 and $8,755,000 for the fiscal years ended July 31, 2009, 2008 and 2007, respectively.  As of April 30, 2010, the Company had a working capital deficit of approximately $14,982,000 and cash and cash equivalents of approximately $671,000.  The loss from date of inception, August 24, 1981, to April 30, 2010 amounts to approximately $122,792,000.





The Company expects that its cash balances, including the $1.6 million restricted cash intended to be used for future clinical trials as of April 30, 2010, will be sufficient to support its activities through April 2011, based on its reduced level of operations.  The Company’s long-term continued operations will depend on its ability to raise additional funds through various potential sources such as equity and debt financing, convertible debentures, collaborative agreements, strategic alliances, sale of tax benefits, revenues from the commercial sale and named-patient basis sale of ONCONASE®, licensing of its proprietary RNase technology and its ability to realize revenues from its technology and its drug candidates via out-licensing agreements with other companies.  The Company may pursue available strategic alternatives which focus on, but are not limited to, strategic partnership transactions.  Such additional funds and various alternatives may not become available as the Company may need them or be available on terms acceptable to the Company, if at all.  Insufficient funds could require the Company to delay, scale back, or eliminate one or more of its research and development programs or to out-license to third parties drug product candidates or technologies that the Company would otherwise seek to develop and commercialize without relinquishing its rights thereto.  Unless and until the Company’s operations generate significant revenues and cash flow, the Company will attempt to continue to fund operations from cash on hand and through the sources of capital described above.  There can be no assurance that the Company will be able to raise the capital it needs on terms which are acceptable, if at all.





The report of the Company’s independent registered public accounting firm on the Company’s fiscal year ended July 31, 2009 financial statements expressed that there was substantial doubt about the Company’s ability to continue as a going concern.  Continued operations are dependent on the Company’s ability to raise additional capital from various sources such as those described above.  Such capital raising opportunities may not be available or may not be available on reasonable terms.  The Company’s financial statements do not include any adjustments that may result from the outcome of this uncertainty.





3.
LOSS PER COMMON SHARE





The Company presents “basic” income (loss) per common share and, if applicable, “diluted” income per common share pursuant to the provisions of ASC “Earnings per Share”.  Basic income (loss) per common share is calculated by dividing net income or loss by the weighted average number of common shares outstanding during each period.  The calculation of diluted earnings per share is similar to that of basic earnings per share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if all potentially dilutive common shares, such as those issuable upon the exercise of outstanding stock options and warrants and the conversion of outstanding convertible debentures were issued during the period and the treasury stock method had been applied to the proceeds from the exercise of the options and warrants and net income or loss was adjusted for interest on the convertible debentures.





11





As of April 30, 2010, there were potentially dilutive securities of stock options, warrants and convertible notes and accrued interest outstanding for the purchase of a total of 3,595,467, 51,183,890 and 22,233,557 shares of common stock, respectively (see Notes 4 and 6 herein).  Diluted per share amounts presented in the accompanying condensed consolidated statements of operations for the three and the nine months ended April 30, 2010 and 2009 are the same as basic per common share amounts because the Company has incurred a net loss for these periods and the basic and diluted per common share amounts are the same, since the inclusion of all potentially dilutive securities would be anti-dilutive.





The following table sets forth the computation of basic and diluted net loss per common share:





Three Months Ended

April 30,


Nine Months Ended

April 30,2010


2009


2010


2009Numerator:Net loss

$
(6,911,805
)

$
(695,736
)

$
(13,859,661
)

$
(4,152,910
)Denominator:Basic weighted average number of common shares outstanding


47,313,880



47,313,880



47,313,880



47,312,744Basic and diluted loss per common share

$
(0.15
)

$
(0.01
)

$
(0.29
)

$
(0.09
)





4.
SHARE-BASED COMPENSATION





In December 2004, the Financial Accounting Standards Board (“FASB”) issued amended guidance on accounting for “Stock Compensation”.  The amended guidance requires all share-based payments, including stock option grants to employees, to be recognized as an operating expense in the statement of operations.  The expense is recognized over the requisite service period based on fair values measured on the date of grant.  The Company adopted the amended guidance on Stock Compensation effective August 1, 2005 using the modified prospective method and, accordingly, prior period amounts have not been restated.  Under the modified prospective method, the fair value of all new stock options issued after July 31, 2005 and the unamortized fair value of unvested outstanding stock options at August 1, 2005 are recognized as expense as services are rendered.





Shares, warrants and options have been issued to non-employees for services.  The fair value of such securities is recorded as an expense and additional paid-in capital in stockholders’ equity over the applicable service periods using variable accounting through the vesting date based on the fair value of the securities at the end of each period or the vesting date.





The Company recorded the following stock-based compensation expense based on the fair value of stock options:





Three Months Ended

April 30,


Nine Months Ended

April 30,2010


2009


2010


2009Research and development

$
-


$
35,767


$
16,808


$
303,911General and administrative


84,907



42,884



231,446



539,079Total share-based compensation expense

$
84,907


$
78,651


$
248,254


$
842,990Basic and diluted loss per common share

$
0.00


$
0.00


$
0.00


$
0.02





The fair value of the stock options at the grant dates was estimated using the Black-Scholes option pricing model based on the weighted-average assumptions as noted in the following table.  The risk-free interest rate for periods approximating the expected life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.  The expected stock price volatility is based on the historical volatility of the Company’s stock price.  For post July 31, 2005 grants, the expected term until exercise is derived using the “simplified” method as allowed under the provisions of SAB 107 and SAB 110 and represents the period of time that options granted are expected to be outstanding.  The “simplified” method was used since the Company does not have sufficient historical data to provide a basis to estimate a justifiable expected term.




12





Three Months Ended

April 30,


Nine Months Ended

April 30,2010


2009


2010


2009Expected dividend yield


0
%


-



0
%


0
%Risk-free interest rate


1.61
%


-



2.17
%


1.00
%Expected stock price volatility


131.63
%


-



120.63
%


102.13
%Expected term (years)


3.18



-



4.66



3.5Weighted average grant date fair value

$
0.20



-


$
0.25


$
0.16





The following table summarizes the stock option activity for the period August 1, 2009 to April 30, 2010:





Stock Options

Outstanding


Weighted Average ExercisePrice PerShare


Weighted Average Remaining ContractualTerm (Years)


Aggregate

Intrinsic ValueBalance August 1, 2009


4,771,650


$
2.64



3.84


$
12,230Granted


941,667



0.30



7.93Exercised


-



-Expired


(2,109,850
)


3.59Forfeited


(8,000
)


1.29Balance April 30, 2010


3,595,467


$
1.47



6.21


$
31,800Exercisable as of April 30, 2010


1,665,467


$
1.81



4.30


$
14,600





As of April 30, 2010, there was approximately $856,000 of total unrecognized compensation expense related to unvested options granted that is expected to be recognized over a weighted average period of 2.6 years.





5.
RESTRICTED CASH





Restricted cash is an escrow account held by a bank which can only disburse funds to satisfy obligations of the Company owed to clinical research organizations, hospitals, doctors and other vendors and service providers associated with the clinical trials which the Company intends to conduct for its ONCONASE® product. The escrow agreement governing the account shall terminate on the earlier of the date that all funds have been disbursed from the escrow account or April 19, 2011, at which time any remaining funds will be disbursed to the Company.





6.
CONVERTIBLE NOTES AND WARRANTS




On October 19, 2009, the Company completed a sale of 65 units (the “Units”) in a private placement (the “Offering”) to certain investors pursuant to a securities purchase agreement (the “Securities Purchase Agreement”).  Each Unit consists of (i) $50,000 principal amount of 5% Senior Secured Convertible Promissory Notes (collectively, the “Notes”) convertible into shares of the Company’s common stock, par value $.001 per share (“Common Stock”), (ii) Series A Common Stock Purchase Warrants (the “Series A Warrants”) to purchase in the aggregate that number of shares of Common Stock initially issuable upon conversion of the aggregate amount of Notes issued as part of the Unit, at an exercise price of $0.15 per share with a three year term and (iii) Series B Common Stock Purchase Warrants (the “Series B Warrants”, together with the Series A Warrants, the “Warrants”) to purchase in the aggregate that number of shares of Common Stock initially issuable upon conversion of the aggregate amount of Notes issued as part of the Unit, at an exercise price of $0.25 per share with a five year term. The closing of the Offering occurred on October 19, 2009 (the “Closing”) and the Company received an aggregate of $3,250,000 in gross proceeds.




13




The Notes mature on the earlier of (i) October 19, 2012; (ii) the closing of a public or private offering of the Company’s debt or equity securities subsequent to the date of issuance resulting in gross proceeds of at least $8,125,000 other than a transaction involving a stockholder who holds 5% or more of the Company’s outstanding capital stock as of the date of issuance; or (iii) on the demand of the holder of the Note upon the Company’s consummation of a merger, sale of substantially all of its assets, or the acquisition by any entity, person or group of 50% or more of the voting power of the Company.  Interest accrues on the principal amount outstanding under the Notes at 5% per annum, and is due upon maturity. Upon an event of default under the Notes, the interest rate shall increase to 7%. On April 27, 2010, the stockholders approved an amendment to the certificate of incorporation increasing the number of authorized shares of capital stock of the Company to cover the conversion of the Notes and exercise of the Warrants. The amendment was filed on the same date.  The Notes are convertible into Common Stock at the option of the holder of the Note at a price of $0.15 per share at any time prior to the date on which the Company makes payment in full of all amounts outstanding under the Note. The Notes are not prepayable for a period of one year following the issuance thereof.  The Notes are secured by a senior security interest and lien on all of the Company’s right, title and interest to all of the assets owned by the Company as of the Closing or thereafter acquired pursuant to the terms of a security agreement (the “Security Agreement”) entered into by the Company with each of the investors. The Warrants are exercisable immediately following the Closing.




In connection with the Offering, the Company entered into an investor rights agreement (the “Investor Rights Agreement”) with each of the investors.  The Investor Rights Agreement provides that the Company will file a “resale” registration statement (the “Initial Registration Statement”) covering all of the shares issuable upon conversion of the Notes (the “Note Shares”) and the shares issuable upon exercise of the Warrants (the “Warrant Shares”, together with the Note Shares, the “Securities”), up to the maximum number of shares able to be registered pursuant to applicable Securities and Exchange Commission (“SEC”) regulations, within 120 days of the Closing (the “Filing Deadline”).  On February 26, 2010, the Company and the investors amended the Investor Rights Agreement (the “Rights Agreement Amendment”) to extend the Filing Deadline to May 1, 2010, which Rights Agreement Amendment was filed with the Form 8-K filed by the Company on March 4, 2010. In accordance with the Investor Rights Agreement, on April 30, 2010, the Company filed with the SEC a “resale” registration statement on Form S-1.  If any Securities are unable to be included on the Initial Registration Statement, the Company has agreed to file subsequent registration statements until all the Securities have been registered.  Under the terms of the Investor Rights Agreement, the Company is obligated to maintain the effectiveness of the “resale” registration statement until all securities therein are sold or otherwise may be sold by non-affiliates pursuant to Rule 144, without restrictions. A cash penalty at 1% per month will be triggered in the event the Company fails to file or obtain the effectiveness of a registration statement prior to the deadlines set forth in the Investor Rights Agreement, which deadlines were extended by the Rights Agreement Amendment, or if the Company ceases to be current in filing its periodic reports with the SEC.  The aggregate penalty accrued with respect to each investor may not exceed 6% of the original purchase price paid by that investor, or 12% if the only effectiveness failure is the Company’s failure to be current in its periodic reports with the SEC.




14




In connection with the Offering, the Company also entered into an escrow agreement (the “Escrow Agreement”) whereby certain investors placed $1,600,000 of the proceeds paid for their Units in an escrow account pursuant to the terms of the Securities Purchase Agreement.  Such amounts can be disbursed from the escrow account only to satisfy obligations of the Company owed to clinical research organizations, hospitals, doctors and other vendors and service providers associated with the clinical trials which the Company intends to conduct for its ONCONASE® product. The Escrow Agreement shall terminate on the earlier of the date that all funds have been disbursed from the escrow account and April 19, 2011, at which time any remaining funds will be disbursed to the Company.





Charles Muniz, the Company’s President, Chief Executive Officer and Chief Financial Officer, subscribed for 20 Units; certain trusts and individuals related to James O. McCash, a beneficial owner of more than five percent of the Company’s voting securities, subscribed for an aggregate of 20 Units; Europa International Inc., a beneficial owner of more than five percent of the Company’s voting securities, subscribed for 15 Units; and Unilab LP, an affiliate of US Pharmacia, an affiliate of the Company’s distributor for ONCONASE® in Eastern Europe and a current stockholder, subscribed for 10 units. These investors are party to the Securities Purchase Agreement, the Investor Rights Agreement, the Security Agreement and the Escrow Agreement. The Company’s entry into an employment agreement with Mr. Muniz upon terms reasonably acceptable to the investors in the Offering was a condition to the Closing.





The Company concluded that it should account for the warrants and conversion options embedded in the Notes in accordance with ASC Topic 815, “Derivatives and Hedging”.  Accordingly, the Company determined that the warrants and the conversion options embedded in the Notes should be accounted for as free standing derivatives that will be measured at fair value and classified as liabilities at the closing of the Offering.  Each subsequent reporting period, the Company will mark to market the warrants and conversion feature of Notes with any change in fair value recorded through the statement of operations.  This accounting treatment is due to the fact that the settlement terms of the warrants and conversion feature of the Notes do not allow them to qualify for equity presentation.  Accordingly, on October 19, 2009, in connection with the closing of the Offering, the convertible feature of the Notes were recorded as a derivative liability of approximately $6.1 million and the Series A and Series B warrants were recorded as a derivative liability of approximately $6.1 million each, respectively.





At the closing for the Offering, the fair value of the conversion feature, approximately $6.1 million, exceeded the proceeds of $3.25 million. The difference of approximately $2.9 million was charged to expense as the change in the fair market value of the conversion liability. Accordingly, the Company recorded an initial discount of $3.25 million equal to the face value of the Notes, which will be amortized over the three-year term, using the straight-line method.




15





At April 30, 2010, the Company accounted for the conversion feature using the fair value method, with the resultant gain recognition recorded in the statement of operations. At April 30, 2010, the fair value of the conversion feature liability was approximately $5.3 million, comprised of the $6.1 million recorded at the closing for the Offering and $0.8 million gain recorded to mark to market the liability at April 30, 2010. The conversion feature was valued at October 19, 2009 and April 30, 2010 using the Black-Scholes valuation model and the following assumptions:





October 19, 2009


April 30, 2010Volatility


126
%


142.13
%Risk-free interest rate


1.50
%


1.24
%Remaining contractual life (years)


3.0



2.47





At the Closing, the Company recorded the Series A and Series B warrants as liabilities at their fair values of approximately $6.1 million each, based upon the Black-Scholes valuation model.  The warrants will be accounted for using mark-to-market accounting and charged to the statement of operations in a manner similar to the conversion feature at each reporting date.





At April 30, 2010, the Company accounted for the warrant liabilities using the fair value method, with the resultant gain recognition recorded in the statement of operations.  At April 30, 2010, the fair value of the Series A and Series B warrant liabilities were approximately $5.3 million and $5.4 million, respectively.  The fair value of the Series A warrant is comprised of the $6.1 million recorded at the closing for the Offering and approximately $0.8 million gain recorded to mark to market the liability at April 30, 2010.  The fair value of the Series B warrant is comprised of the $6.1 million recorded at the closing for the Offering and approximately $0.8 million gain recorded to mark to market the liability at April 30, 2010.





The Series A and Series B warrant liabilities were valued at October 19, 2009 and April 30, 2010 using the Black-Scholes valuation model and the following assumptions:





Series A Warrants


Series B WarrantsOctober 19, 2009


April 30, 2010


October 19, 2009


April 30, 2010Volatility


126
%


142.13
%


113.17
%


120.63
%Risk-free interest rate


1.50
%


1.24
%


2.36
%


2.43
%Remaining contractual life (years)


3.0



2.47



5.0



4.47





In addition, the Company evaluated the classification of all non-employee share commitments issued outside of the plans which existed prior to the Offering (the “Prior Non-Employee Commitments”). As a result, at October 19, 2009, the Company reclassified $747,235 from equity to liability for all Prior Non-Employee Commitments and has included this amount as a part of derivative liability.  The Company marked to market the Prior Non-Employee Commitments at April 27, 2010 and recorded a gain of $611,085 for the change in fair value from October 19, 2009 to April 27, 2010.  On April 27, 2010, the Company's stockholders approved an amendment to the Company's certificate of incorporation increasing the amount of authorized shares to cover all existing share commitments therefore, the marked-to-market liabilities for Prior Non-Employee Commitments were reclassified to equity in the amount of $136,150.




16





7.
CAPITAL STOCK





On April 27, 2010, at the Company’s annual stockholders’ meeting, the Company’s stockholders approved an amendment to the Company’s Certificate of Incorporation, as amended, to increase the number of shares of common stock authorized from 100,000,000 to 250,000,000.





8.
REVENUE RECOGNITION





The Company recognizes revenue in accordance with SAB No. 104, “Revenue Recognition” issued by the staff of the SEC.  Under SAB 104, revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred and/or services have been rendered, the sales price is fixed or determinable, and collectability is reasonably assured.





The Company enters into marketing and distribution agreements, which contain multiple deliverables.  The Company evaluates whether these deliverables constitute separate units of accounting to which total arrangement consideration is allocated.  A deliverable qualifies as a separate unit of accounting when the item delivered to the customer has standalone value, there is objective and reliable evidence of fair value of items that have not been delivered to the customer and if there is a general right of return for the items delivered to the customer, delivery or performance of the undelivered items is considered probable and substantially in the control of the Company.  Arrangement consideration is allocated to units of accounting on a relative fair-value basis or the residual method if the Company is unable to determine the fair value of all deliverables in the arrangement. Consideration allocated to a unit of accounting is limited to the amount that is not contingent upon future performance by the Company.  Upon determination of separate units of accounting and allocated consideration, the general criteria for revenue recognition is applied to each unit of accounting.





In January 2008, the Company entered into a U.S. License Agreement for ONCONASE® with Par Pharmaceutical, Inc. (“Par”).  Under the terms of the License Agreement, Strativa Pharmaceuticals (“Strativa”), the proprietary products division of Par, received exclusive marketing, sales and distribution rights to ONCONASE® for the treatment of cancer in the United States and its territories.  The Company retained all rights and obligations for product manufacturing, clinical development and obtaining regulatory approvals, as well as all rights for those non-U.S. jurisdictions in which the Company has not currently granted any such rights or obligations to third parties.  The Company received a cash payment of $5 million upon the signing of the License Agreement.





On September 8, 2009, the Company and Par entered into a Termination and Mutual Release Agreement (the “Termination Agreement”) pursuant to which the Company’s License Agreement and Supply Agreement with Par were terminated. The License Agreement was terminated and all rights under the license granted to Par reverted back to the Company under the Termination Agreement.  Under the Supply Agreement, the Company had agreed to supply all of Par’s requirements for ONCONASE®.  Pursuant to the Termination Agreement, Par will be entitled to a royalty of 2% of net sales of ONCONASE® or any other ranpirnase product developed by the Company for use in the treatment of cancer in the United States and its territories commencing with the first sale of such product and terminating upon the later to occur of the twelfth anniversary of the first sale and the date of expiration of the last valid claim of a pending application or issued patent owned or controlled by the Company with respect to such product.





The Company has evaluated both the License Agreement and the Termination Agreement and has determined that the Company is obligated to provide royalty payments in the event the Company has net sales.  As such, as of April 30, 2010, the Company has not recognized into income any of the $5 million upfront payment received under the License Agreement.




17





9.
COMMITMENTS





Employment and Retirement Agreements





Except as disclosed below, there have been no material changes with respect to the Company’s employment and retirement agreements as disclosed in the “Notes to the Financial Statements – Commitments” in the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2009.





On April 28, 2008, the Company entered into a retirement agreement (the “Retirement Agreement”) with Ms. Shogen.  Under the terms of the Retirement Agreement, Ms. Shogen was entitled to receive her then current annual salary of $300,000 and participate in all benefit plans available for the Company’s executives through her retirement date, which occurred on March 31, 2009 (the “Termination Date”).  Ms. Shogen will receive retirement payments of $300,000 for each of the two years after the Termination Date.  During the fiscal year ended July 31, 2008, the Company accrued these benefits in the amount of $612,000.





On September 14, 2009, the Company entered into an amendment (the “Amendment”) to the Retirement Agreement amending certain terms.  Pursuant to the Amendment, effective as of September 14, 2009, periodic payments owed to Ms. Shogen under the Retirement Agreement during the two year period commencing April 1, 2008 will be paid at the rate of $150,000 per year, rather than $300,000 per year as originally provided in the Retirement Agreement.  Under the Retirement Agreement, Ms. Shogen was entitled to receive continuing payments equal to 15% of any royalties received by the Company pursuant to any and all license agreements entered into by the Company for the marketing and distribution of Licensed Products. Under the Amendment, the amount of such royalties related to net sales of Licensed Products to be received by Ms. Shogen has been reduced to 5%.  Under the Retirement Agreement, Ms. Shogen was entitled to receive continuing payments equal to 5% of net sales of Licensed Products booked by the Company on its financial statements.  Under the Amendment the amount of such net sales booked by the Company has been reduced to 2%. Under the Amendment, in the event the Company obtains marketing approval for ONCONASE® from the Food and Drug Administration or the European Medicines Agency, Ms. Shogen will be entitled to receive an additional payment equal to the difference between the periodic payments actually paid to Ms. Shogen during the two year period commencing April 1, 2008 and $600,000, the original amount of periodic payments to which Ms. Shogen was entitled under the Retirement Agreement.  Such additional payment may be made by the Company, at its option, in cash, the Company common stock or a combination of both.  The Amendment is binding on the parties as of September 14, 2009.  Except as specifically amended in the Amendment, all terms and conditions of the Retirement Agreement remain in full force and effect.




On October 19, 2009, the Company entered into an Employment Agreement (the “Employment Agreement”) with Mr. Muniz.  Pursuant to the Employment Agreement, Mr. Muniz shall serve as the Company’s President, Chief Executive Officer and Chief Financial Officer. Mr. Muniz will receive an annual base salary of $300,000 and is entitled to receive cash incentive compensation or annual stock option awards as determined bythe Board or the Compensation Committee of the Board from time to time. In addition, Mr. Muniz is entitled to participate in any and all employee benefit plans established and maintained by the Company for executive officers of the Company. Pursuant to the Employment Agreement, Mr. Muniz received an option (the “Option”), granted under and in accordance with the Company’s 2004 Stock Incentive Plan, to purchase an aggregate of 500,000 shares of Common Stock exercisable for ten years from the date the Option is granted. The Option shall vest in equal amounts on each of the first, second and third year anniversary of the grant so long as Mr. Muniz remains employed by the Company. The exercise price of the Option was equal to the fair market value of the Common Stock on the date of grant.  The Employment Agreement continues in effect for two years following the date of the agreement and automatically renews for successive one-year periods, unless Mr. Muniz’s employment is terminated by him or by the Company. In the event that Mr. Muniz’s employment is terminated by the Company for any reason, then Mr. Muniz is entitled to receive his earned but unpaid base salary and incentive compensation, unpaid expense reimbursements, accrued but unused vacation and any vested benefits under any employee benefit plan of the Company. In the event that Mr. Muniz’s employment is terminated by the Company without “cause” or by Mr. Muniz for “good reason” (as such terms are defined in the Employment Agreement), then in addition to the above mentioned payments and benefits, Mr. Muniz is entitled to receive an amount equal to his then current annual base salary, payable in equal installments over 12 months in accordance with the Company’s payroll practice and all medical and health benefits for 18 months following the termination date. Mr. Muniz’s Employment Agreement requires him to refrain from competing with the Company and from hiring our employees and soliciting our customers for a period of one year following the termination of his employment with the Company for any reason.




18





Lease Commitments





Except as stated below, there have been no material changes with respect to the Company’s operating leases as disclosed in the “Notes to the Financial Statements – Commitments” in the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2009.





On January 15, 2010, Mr. Muniz, as an individual, entered into a quarterly lease agreement with I&G Garden State, LLC (“I&G”) for office space at the fourth floor of 300 Atrium Drive, Somerset, NJ, which space the Company will occupy as its new office.  The lease expires on June 30, 2010, renewable for successive three-month periods upon thirty days prior notice and payment of $15,790.50 for the following three months’ rent.  The Company intends to renew the lease upon its expiration.  Since the beginning of the lease term, the Company has been paying the quarterly rent payments directly to I&G.





In January 2010, the Company vacated its old facility pursuant to the complaint filed by its landlord, I&G in November 2009.  In February 2010, I&G withdrew the remaining balance of the Company’s secured irrevocable letter of credit which was placed in March 2007 in the amount of approximately $81,000.  On February 5, 2010, I&G commenced an action against the Company.  The lawsuit seeks unspecified damages for an alleged breach of a lease agreement dated March 14, 2007 between the Company and I&G.  The Company intends to vigorously defend this action.





10.           CONTINGENCIES





The Company has product liability insurance coverage for clinical trials in the U.S. and in other countries where it conducts its clinical trials. No product liability claims have been filed against the Company. If a claim arises and the Company is found liable in an amount that significantly exceeds the policy limits, it may have a material adverse effect upon the financial condition and results of operations of the Company.





Except as disclosed below, there have been no material changes with respect to the Company’s contingencies as disclosed in the “Notes to the Financial Statements – Contingencies” in the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2009.





On October 9, 2009, Robert Love, a former Chief Financial Officer and alleged shareholder of the Company, filed a complaint, Love v. Alfacell Corp. et al., Case No. 3:09-cv-05199-MLC-LHG (the “Complaint”), against the Company and certain of its current and former directors in the United States District Court, District of New Jersey, asserting violations of federal and state securities laws, direct and derivative common law claims for fraud and breach of fiduciary duty, and a direct claim for negligent misrepresentation in connection with the Company’s Phase IIIb clinical trial for ONCONASE®.  The Complaint alleges that the Company misled shareholders by issuing allegedly false projections of when the required number of patient deaths would occur in the Phase IIIb trial.  The Complaint seeks compensatory damages of no less than $350,000, punitive damages of no less than $20 million, and an accounting and constructive trust.  The Company believes that the claims are meritless and intends to defend the case vigorously.




19





I&G filed and served a complaint against the Company in the Superior Court of New Jersey Law Division, Special Civil Part Landlord-Tenant Section, Somerset County, on or about October 30, 2009, for non-payment of rent and failure to maintain security deposit.  The complaint seeks to have the Company vacate the property.  On November 13, 2009, the Company and I&G mutually agreed that the Company will vacate the property on or before December 31, 2009.  In January 2010, the Company vacated the facility as per mutual agreement.  In February 2010, I&G withdrew the remaining balance of the Company’s secured irrevocable letter of credit which was placed in March 2007 in the amount of approximately $81,000.  On February 5, 2010, I&G commenced an action against the Company.  The lawsuit seeks unspecified damages for an alleged breach of a lease agreement dated March 14, 2007 between the Company and I&G.  The Company intends to vigorously defend this action.





11.           SALES





The Company was granted approval by the Swiss government to sell its product ONCONASE® on a named-patient basis.  For the nine months ended April 30, 2010, the Company received gross proceeds of $18,750 from such sale.





12.           RELATED PARTY TRANSACTIONS




On October 19, 2009, Mr. Muniz was a party to the Securities Purchase Agreement, the Investor Rights Agreement, the Security Agreement and the Escrow Agreement.  The Company’s entry into an employment agreement with Mr. Muniz upon terms reasonably acceptable to the investors in the Offering was a condition to the Closing.  See Note 6 – Convertible Notes and Warrants.




20





Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations





Information herein contains, in addition to historical information, forward-looking statements that involve risks and uncertainties.  All statements, other than statements of historical fact, regarding our financial position, potential, business strategy, plans and objectives for future operations are “forward-looking statements.”  These statements are commonly identified by the use of forward-looking terms and phrases as  “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “seeks,” “should,” or “will” or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy.  We cannot assure you that the future results covered by these forward-looking statements will be achieved.  The matters set forth in Part I, Item 1A. “Risk Factors” in our most recent annual report on Form 10-K, filed on November 13, 2009, constitute cautionary statements identifying important factors with respect to these forward-looking statements, including certain risks and uncertainties, that could cause actual results to vary significantly from the future results indicated in these forward-looking statements.  Other factors could also cause actual results to differ significantly from the future results indicated in these forward-looking statements.  Other than as set forth below, there have been no material changes to the discussion of risk factors included in our most recent Annual Report on Form 10-K.





Overview




We are a biopharmaceutical company engaged in the research, development, and commercialization of drugs for life threatening-diseases, such as malignant mesothelioma and other cancers.  Our corporate strategy is to become a leader in the discovery, development, and commercialization of novel ribonuclease (RNase) therapeutics for cancer and other life-threatening diseases.  As of April 30, 2010, we had four full time employees who conducted all administrative and research and development operations at our facility in Somerset, NJ.





We are a development stage company as defined in the Accounting Standards Codification (“ASC”) Topic 915, “Development Stage Entities”.  We are devoting substantially all of our present efforts to establishing a new business and developing new drug products. Our planned principal operations of marketing and/or licensing new drugs have not commenced and, accordingly, we have not derived any significant revenue from these operations.





Since our inception in 1981, we have devoted the vast majority of our resources to the research and development of ONCONASE®, our lead drug candidate, as well as other related drug candidates.  In recent years we have focused our resources towards the completion of the clinical program for ONCONASE® in patients suffering from unresectable, or inoperable, malignant mesothelioma (“UMM”).  We have incurred losses since inception and we have not received Food and Drug Administration (“FDA”) approval of any of our drug candidates.  We expect to continue to incur losses for the foreseeable future as we continue our research and development activities, which may include the sponsorship of human clinical trials for our drug candidates.  Until we are able to consistently generate revenue through the sale of products, we anticipate that we will be required to fund the development of our pre-clinical compounds and drug product candidates primarily by other means, including, but not limited to, licensing the development or marketing rights to some of our drug candidates to third parties, collaborating with third parties to develop our drug candidates, or selling Company issued securities.





During the quarter ended April 30, 2010, at the annual stockholders’ meeting, our stockholders approved an amendment to our Certificate of Incorporation, as amended, changing the name of the company from Alfacell Corporation to Tamir Biotechnology, Inc. and increasing our authorized common stock from 100,000,000 to 250,000,000 shares.





During the nine months ended April 30, 2010, we completed a sale of 65 Units in a private financing to certain investors pursuant to a securities purchase agreement (the “Securities Purchase Agreement”) entered into on October 19, 2009. Each Unit consists of (i) $50,000 principal amount of Senior Secured Notes convertible into shares of the Company’s common stock at a price of $0.15 per share, (ii) Series A Warrants to purchase in the aggregate that number of shares of common stock initially issuable upon conversion of the aggregate amount of the Senior Secured Notes issued as part of the Unit, at an exercise price of $0.15 per share with a three year term and (iii) Series B Warrants to purchase in the aggregate that number of shares of common stock initially issuable upon conversion of the aggregate amount of the Senior Secured Notes issued as part of the Unit, at an exercise price of $0.25 per share with a five year term. The closing of the private financing occurred on October 19, 2009, and we received an aggregate of $3,250,000 in gross proceeds.





21




Pursuant to the terms of the Securities Purchase Agreement, certain investors party thereto are permitted to appoint a designee to the Board of Directors (the “Board”) within a reasonable period of time following the closing of the private financing.  In addition, as a condition to closing the private financing, each member of the Board other than David Sidransky, Chairman of the Board, and Charles Muniz, agreed to resign from the Board upon the request of Dr. Sidransky made at any time following the closing of the private financing and prior to December 31, 2009.  On January 2, 2010 and January 29, 2010, respectively, Donald Conklin and Kuslima Shogen resigned from the Board.  Stephen Carter did not seek reelection at our annual meeting of the stockholders, which occurred on April 27, 2010.




In connection with the private financing, we entered into the Investor Rights Agreement with each of the investors. The Investor Rights Agreement provides that we will file a “resale” registration statement covering all of the shares issuable upon conversion of the Senior Secured Notes and the shares issuable upon exercise of the Warrants, up to the maximum number of shares able to be registered pursuant to applicable SEC regulations, by May 1, 2010, which date was extended from February 16, 2010 pursuant to an amendment to the Investor Rights Agreement we entered into with the investors on February 26, 2010 and reported on Form 8-K we filed on March 4, 2010. In accordance with the Investor Rights Agreement, on April 30, 2010, the Company filed with the SEC a “resale” registration statement on Form S-1.  If any of the securities issuable upon conversion or exercise, respectively, of the Senior Secured Notes and Warrants are unable to be included on the initial “resale” registration statement, we agreed to file subsequent registration statements until all the securities have been registered.  Under the terms of the Investor Rights Agreement, we are obligated to maintain the effectiveness of the “resale” registration statement until all securities therein are sold or otherwise may be sold by non-affiliates pursuant to Rule 144 of the Securities Act, without restrictions. A cash penalty of 1% per month will be triggered in the event we fail to file or obtain the effectiveness of a registration statement prior to the deadlines set forth in the Investor Rights Agreement, which deadlines were extended by the amendment to the Investor Rights Agreement, or if we cease to be current in filing our periodic reports with the SEC.  The aggregate penalty accrued with respect to each investor may not exceed 6% of the original purchase price paid by that investor, or 12% if the only effectiveness failure is our failure to be current in our periodic reports with the SEC.





In connection with the private placement, we also entered into an escrow agreement whereby certain investors placed $1,600,000 of the proceeds paid for their Units in an escrow account pursuant to the terms of the Securities Purchase Agreement.  Such amounts can be disbursed from the escrow account only to satisfy obligations we owed to clinical research organizations, hospitals, doctors and other vendors and service providers associated with the clinical trials which we intend to conduct for our ONCONASEâ product. The escrow agreement shall terminate on the earlier of the date that all funds have been disbursed from the escrow account or April 19, 2011, at which time any remaining funds will be disbursed to us.





In connection with our private financing completed in October 2009, we issued $3.25 million of Senior Secured Notes convertible into shares of our common stock at a price of $0.15 per share.  The Senior Secured Notes mature on the earlier of (i) October 19, 2012; (ii) the closing of a public or private offering of our debt or equity securities subsequent to the date of issuance resulting in gross proceeds of at least $8,125,000 other than a transaction involving a stockholder who holds 5% or more of our outstanding capital stock as of the date of issuance; or (iii) on the demand of the holder of the Senior Secured Note upon our consummation of a merger, sale of substantially all of our assets, or the acquisition by any entity, person or group of 50% or more of our voting power.  Interest accrues on the principal amount outstanding under the Senior Secured Notes at 5% per annum, and is due upon maturity.  Upon an event of default under the Notes, the interest rate shall increase to 7%. The Senior Secured Notes are not prepayable for a period of one year following the issuance thereof.  The Senior Secured Notes are secured by a senior security interest and lien on all of our right, title and interest to all of the assets owned by us as of the closing of the private financing or thereafter acquired pursuant to the terms of a security agreement we entered into with each of the investors.




22





For so long as the Senior Secured Notes are outstanding, we are not permitted, among other restrictions, to liquidate or dissolve, consolidate with or merge into or with any other corporation, to sell our assets, other than in the ordinary course of business, redeem or repurchase any outstanding equity or debt securities, create or incur any indebtedness which is not subordinate to the Senior Secured Notes or create liens on our assets with certain exceptions.





Almost all of the $73 million of research and development expenses we have incurred since our inception has gone toward the development of ONCONASE®and related drug candidates.  For the three and nine months ended April 30, 2010 and for fiscal years ended July 31, 2009, 2008 and 2007, our research and development expenses were approximately $0.1 million, $0.4 million, $3.3 million, $8.5 million, and $5.5 million, respectively, almost all of which were used for the development of ONCONASE®and related drug candidates.  We cannot predict with certainty what our total cost associated with obtaining marketing approvals will be, and we are unable to predict when and if such approvals will be granted, or if and when actual sales will occur.





We fund the research and development of our products primarily from cash receipts resulting from the sale of our equity securities and convertible debentures in registered offerings and private placements.  Additionally, we have raised capital through other debt financings, the sale of our tax benefit and research products, interest income and financing received from Kuslima Shogen, our former Chief Executive Officer. Our current cash reserves will be used primarily to fund our clinical and pre-clinical research and development efforts for ONCONASEâ.  The most significant expenses will be incurred for the currently planned Phase II clinical study for non-small cell lung cancer.  Additional expenses are also expected to be incurred as we continue to move our drug product candidates towards the next phase of clinical and pre-clinical development.





We have incurred losses since inception and, to date, we have generated only small amounts of capital from marketing and distribution agreements for ONCONASE®.  Our audited financial statements for the fiscal year ended July 31, 2009, were prepared under the assumption that we will continue our operations as a going concern.  We were incorporated in 1981 and have a history of losses and negative cash flows from operating activities.  As a result, our independent registered public accounting firm in their audit report has expressed that there was substantial doubt about our ability to continue as a going concern. Continued operations are dependent on our ability to raise additional capital from various sources such as those described above.  Such capital raising opportunities may not be available or may not be available on reasonable terms.  Our financial statements do not include any adjustments that may result from the outcome of this uncertainty.




23





We may seek to satisfy future funding requirements through public or private offerings of securities or with collaborative or other arrangements with corporate partners.  Additional financing or strategic transactions may not be available when needed or on terms acceptable to us, if at all.  If adequate financing is not available, we may be required to delay, scale back, or eliminate certain of our research and development programs, relinquish rights to certain of our technologies, drugs or products, or license third parties to commercialize products or technologies that we would otherwise seek to develop ourselves.





Liquidity and Capital Resources





We have reported cumulative net losses of approximately $25.6 million for the three most recent fiscal years ended July 31, 2009.  The net losses from date of inception, August 24, 1981, to April 30, 2010 amount to approximately $122.8 million.  As of April 30, 2010, we have a working capital deficit of approximately $15.0 million.





We have financed our operations since inception primarily through the sale of our equity securities and convertible debentures in registered offerings and private placements.  Additionally, we have raised capital through other debt financings, the sale of our state tax benefit and research products, and investment income and financing received from Kuslima Shogen, our former Chief Executive Officer.  As of April 30, 2010, we had approximately $0.7 million in cash and cash equivalents.  We currently believe that our cash reserves including the $1.6 million restricted cash intended for future clinical trials can support our activities through April 2011, based upon our reduced operations.





The primary use of our cash will be to fund our clinical and pre-clinical research and development efforts for ONCONASEâ.  The most significant expenses will be incurred for the currently planned Phase II clinical study for non-small cell lung cancer.  Additional expenses are also expected to be incurred as we continue to move our drug product candidates towards the next phase of clinical and pre-clinical development.  We will need to obtain additional financing in order to continue our operations.  Given current market conditions, it may be very difficult, if not impossible, to obtain such financing.  In order to continue our operations we will need to pursue strategic alternatives for the further development of ONCONASE®.





The report of our independent registered public accounting firm on our fiscal year ended July 31, 2009 financial statements expressed that there was substantial doubt about our ability to continue as a going concern.  Continued operations are dependent on our ability to raise additional capital from various sources such as those described above.  Such capital raising opportunities may not be available or may not be available on reasonable terms.  Our financial statements do not include any adjustments that may result from the outcome of this uncertainty.





Results of Operations





Three month periods ended April 30, 2010 and 2009





We focus most of our productive and financial resources on the development of ONCONASE® and as such we did not have any material sales in the three month periods ended April 30, 2010 and 2009.





Research and development expense for the three month period ended April 30, 2010 was approximately $0.1 million compared to approximately $0.4 million for the same period in 2009, a decrease of approximately $0.3 million, or 63%.  The decrease was primarily related to decreased expenses incurred for the ONCONASE® rolling NDA submission for our Phase IIIb clinical trial for malignant mesothelioma and decreased compensation expense from reduction in force and decreased stock-based compensation expense.




24





General and administrative expense for the three month period ended April 30, 2010 was approximately $0.4 million compared to approximately $0.3 million for the same period in 2009, an increase of approximately $0.1 million, or 23%.  This increase was primarily due to stock-based compensation expense.




Interest expense for the three month period ended April 30, 2010 increased by approximately $7.0 million compared to the same period last year.  This increase was directly due to the change in valuation of the derivative liability.




New Jersey permits certain corporations located in New Jersey to sell a portion of their state tax loss carryforwards and state research and development credits, or state tax benefit.  For the state fiscal year 2010 (July 1, 2009 to June 30, 2010), we had approximately $723,000 of total available state tax benefit that was saleable.  On February 8, 2010, we received approximately $647,000 from the sale of our total available state tax benefit, which was recognized as state tax benefit for the three months ended April 30, 2010.  For the state fiscal year 2009 (July 1, 2008 to June 30, 2009), we had approximately $1,274,000 of total available state tax benefit that was saleable.  On December 1, 2008, we received approximately $1,140,000 from the sale of our total available state tax benefit, which was recognized as state tax benefit for the nine months ended April 30, 2009.




The net loss for the three month period ended April 30, 2010 was approximately $6.9 million as compared to $0.7 million loss for the same period last year, an increase of approximately $6.2 million. The increase was primarily due to the change in fair value of the derivative liability at April 30, 2010.





Nine month periods ended April 30, 2010 and 2009





We focus most of our productive and financial resources on the development of ONCONASE® and as such, except for the sales for the nine month period ended April 30, 2010 in the amount of $18,750 which resulted from the sale on a named-patient basis of our product ONCONASE® as approved by the Swiss government, we did not have any material sales in the nine month periods ended April 30, 2010 and 2009.





Research and development expense for the nine month period ended April 30, 2010 was approximately $0.4 million compared to approximately $3.2 million for the same period in 2009, a decrease of approximately $2.8 million, or 87%.  The decrease was primarily related to decreased expenses of approximately $2.0 million related to costs incurred for the ONCONASE® rolling NDA submission for our Phase IIIb clinical trial for malignant mesothelioma, decreased compensation expense of approximately $0.8 million from reduction in force and decreased stock-based compensation.




General and administrative expense for the nine month period ended April 30, 2010 was approximately $1.2 million compared to $2.1 million for the same period in 2009, a decrease of approximately $0.9, or 42%.  This decrease was primarily related to decreased compensation expense of approximately $0.6 million from decreased stock-based compensation expense, retirement of Kuslima Shogen, our former chief executive officer and resignation of Lawrence Kenyon, our former chief financial officer.  Public relations related costs and other general administrative expenses also decreased by approximately $0.3 million due to our reduced operations in fiscal year 2010.




Interest expense for the nine month period ended April 30, 2010 increased by approximately $12.8 million compared to the same period last year.  This increase was directly due to the beneficial conversion feature of the convertible debenture and warrants we issued in October 2009, the original recognition of and the change in valuation of the derivative liability.




25




New Jersey permits certain corporations located in New Jersey to sell a portion of their state tax loss carryforwards and state research and development credits, or state tax benefit.  For the state fiscal year 2010 (July 1, 2009 to June 30, 2010), we had approximately $723,000 of total available state tax benefit that was saleable.  On February 8, 2010, we received approximately $647,000 from the sale of our total available state tax benefit, which was recognized as state tax benefit for the nine months ended April 30, 2010.  For the state fiscal year 2009 (July 1, 2008 to June 30, 2009), we had approximately $1,274,000 of total available state tax benefit that was saleable.  On December 1, 2008, we received approximately $1,140,000 from the sale of our total available state tax benefit, which was recognized as state tax benefit for the nine months ended April 30, 2009.




The net loss for the nine month period ended April 30, 2010 was approximately $13.9 million as compared to $4.2 million for the same period last year, an increase of $9.7 million.  The cumulative loss from the date of inception, August 24, 1981 to April 30, 2010, amounted to $122.8 million.  We have incurred net losses during each year since our inception.  Such losses are attributable to the fact that we are still in the development stage and, accordingly, have not derived sufficient revenues from operations to offset our development stage expenses.





Off-balance Sheet Arrangements





We have no off-balance sheet debt, no exposure to off-balance sheet arrangements, no special purpose entities, nor activities that include non-exchange-traded contracts accounted for at fair value as of April 30, 2010.





Contractual Obligations and Commercial Commitments





Except as stated below, there have been no material changes with respect to our operating leases as disclosed in the “Notes to the Financial Statements – Commitments” in the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2009.





On January 15, 2010, Charles Muniz, our President and Chief Executive Officer, as an individual, entered into a quarterly lease agreement with I&G Garden State, LLC (“I&G”) for new office at the fourth floor of 300 Atrium Drive, Somerset, NJ, which space we will occupy as our new office.  The lease expires on June 30, 2010, renewable for successive three-month periods upon thirty days prior notice and payment of $15,790.50 for the following three months’ rent.  We intend to renew the lease upon its expiration.  Since the beginning of the lease term, we have been paying the quarterly rent payments directly to I&G.





In January 2010, we vacated our old facility pursuant to the complaint filed by our landlord, I&G in November 2009.  In February 2010, I&G withdrew the remaining balance of the Company’s secured irrevocable letter of credit which was placed in March 2007 in the amount of approximately $81,000.  On February 5, 2010, I&G commenced an action against us.  The lawsuit seeks unspecified damages for an alleged breach of a lease agreement dated March 14, 2007 between the Company and I&G.  We intend to vigorously defend this action.





Critical Accounting Policies and Estimates





Critical accounting policies are those that involve subjective or complex judgments, often as a result of the need to make estimates.  The following areas all require the use of judgments and estimates: research and development expenses, accounting for stock-based compensation, accounting for warrants issued with convertible debt and deferred income taxes.  Estimates in each of these areas are based on historical experience and various assumptions that we believe are appropriate.  Actual results may differ from these estimates.  Our accounting practices are discussed in more detail in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 1 of “Notes to Consolidated Financial Statements” in our Annual Report on Form 10-K for the year ended July 31, 2009.




26





Recently Issued Accounting Standards





In June 2009, the Financial Accounting Standards Board (“FASB”) issued the FASB Accounting Standards Codification (the “Codification”).  Effective July 1, 2009, the Codification became the single source of authoritative nongovernmental U.S. generally accepted accounting principles (GAAP), superseding existing rules and related literature issued by FASB, the American Institute of Certified Public Accountants (“AICPA”) and Emerging Issues Task Force (“EITF”).  The Codification also eliminates the previous U.S. GAAP hierarchy and establishes one level of authoritative GAAP.  Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants.  All other literature is considered non-authoritative.  The Codification, which has not changed GAAP, was effective for interim and annual periods ended after September 15, 2009.  The Company adopted the Codification for the quarter ended October 31, 2009.  Other than the manner in which accounting guidance is referenced, the adoption of the Codification had no impact on the Company’s financial statements.





In December 2007, FASB issued new accounting guidance related to the accounting for business combinations and related disclosures.  This guidance establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree, and any goodwill acquired in a business combination.  It also establishes disclosure requirements to enable the evaluation of the nature and financial effects of a business combination.  The guidance is to be applied prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008.  The Company adopted this guidance, effective August 1, 2009, and it did not have any effect on the Company’s financial statements.





In February 2008, FASB issued amended guidance to delay the fair value measurement and expanded disclosures about fair value measurements for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), until fiscal years beginning after November 15, 2008.  Effective August 1, 2009, the Company adopted the guidance related to fair value measurements for nonfinancial assets and nonfinancial liabilities and the adoption of such guidance did not have any effect on the Company’s financial statements.





In June 2008, FASB issued guidance for determining whether an equity-linked financial instrument (or embedded feature) is indexed to an entity’s own stock, which would qualify as a scope exception to derivative classification under ASC Topic 815, “Derivatives and Hedging”.  The guidance is effective for fiscal years beginning after December 15, 2008 and early adoption for an existing instrument is not permitted.  The Company adopted this guidance, effective August 1, 2009.  The adoption had no impact on the Company’s previously accounted for equity-linked financial instruments that were considered to be indexed to its own equity.  Refer to Note 6 for the result of the adoption on the equity-linked instruments included within the Securities Purchase Agreement entered into on October 19, 2009.





In May 2009, FASB issued guidelines on subsequent event accounting which sets forth: (1) the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements; (2) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements; (3) the disclosures that an entity should make about events or transactions that occurred after the balance sheet date and (4) requires the reporting entity to evaluate subsequent events through the date the financial statements are issued.  The Company adopted these amendments for the fiscal year ended July 31, 2009 and determined that it did not have a material impact on the Company’s financial statements.  The Company evaluated all events or transactions that occurred after April 30, 2010 through the date the financial statements were issued.




27





In August 2009, FASB issued amended guidance on the measurement of liabilities at fair value.  The guidance provides clarification that in circumstances in which a quoted market price in an active market for an identical liability is not available, the fair value of a liability be measured using one or more of the valuation techniques that uses the quoted price of an identical liability when traded as an asset or, if unavailable, quoted prices for similar liabilities or similar assets when traded as assets.  If none of this information is available, an entity should use a valuation technique in accordance with existing fair valuation principles.  This guidance is effective for the first reporting period (including interim periods) after issuance.  The Company adopted this guidance in the quarter ended October 31, 2009.  The adoption had no impact on the Company’s financial statements.





In October 2009, FASB issued amended guidance for separating consideration in multiple-deliverable arrangements.  It eliminates the requirement under previous guidance that all undelivered elements have vendor-specific objective evidence (VSOE) or third-party evidence (TPE) of fair value before recognizing a portion of revenue related to the delivered items, and establishes that revenue be allocated to each element based on its relative selling price, as determined by VSOE, TPE, or the entity’s estimated selling price if neither of the aforementioned is available.  Additionally, the amended guidance eliminates the residual method of allocation and expands required disclosures about multiple-element revenue arrangements.  It will be effective prospectively for revenue arrangements entered into beginning January 1, 2011, with early adoption permitted.  The Company is currently evaluating the impact that the adoption of this guidance will have, if any, on our financial statements.





Item 3.    Quantitative and Qualitative Disclosures About Market Risk





As of April 30, 2010, we were exposed to market risks, primarily changes in U.S. interest rates. As of April 30, 2010, we held total cash and cash equivalents of approximately $0.7 million. All cash equivalents have a maturity less than 90 days. Declines in interest rates over time would reduce our interest income from our investments. Based upon our cash and cash equivalents balance as of April 30, 2010, a market interest rate decrease of 1% would have minimal or no impact on the carrying value of our cash and cash equivalents.





Item 4.  Controls And Procedures





(a)
Evaluation of disclosure controls and procedures.





Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (“the Exchange Act”)), as of April 30, 2010, the end of the period covered by this report.  Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission including without limitation, controls and procedures that are designed to ensure that the information required to be disclosed in reports by us that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely discussion regarding required disclosures.




28





(b)  Changes in internal controls.





There have been no changes in our internal control over financial reporting during the quarter ended April 30, 2010 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting subsequent to the date of the evaluation referred to above.





PART II. OTHER INFORMATION





Item 1.      Legal Proceedings





There have been no material changes with respect to the Company’s Legal Proceedings as disclosed in “Item 3.  Legal Proceedings” in the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2009 and “Item 1. Legal Proceedings” in the Company’s Quarterly Report on Form 10-Q for the quarters ended October 31, 2009 and January 31, 2010.





Item 1A.   Risk Factors





In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended July 31, 2009 as filed with the Securities and Exchange Commission on November 13, 2009.





Based upon guidance provided by the FDA at a pre-NDA meeting, we decided not to file a new drug application (NDA) for ONCONASE® for unresectable malignant mesothelioma (UMM) and to not pursue further clinical trials of ONCONASE® for the treatment of UMM.





The results of the preliminary statistical analysis of the data from the confirmatory Phase IIIb clinical trial we conducted for ONCONASE® in patients suffering from UMM did not meet statistical significance for the primary endpoint of survival in UMM.  Although a statistically significant improvement in survival was seen in the treatment of UMM patients who failed one prior chemotherapy regimen, a pre-defined primary data set for this sub-group of patients in the trial, at a pre-NDA meeting with the FDA held in January 2009, the FDA recommended that an additional clinical trial be conducted in this sub-group of patients prior to our submitting an NDA for ONCONASE®.  Based upon our assessment that it would be difficult to design and conduct a clinical trial that would comply with the FDA’s recommendation and allow us to file an NDA, we have determined at this time not to pursue further clinical trials for the treatment of UMM.  Based upon the results of certain preclinical testing performed on ONCONASE® we have decided to pursue a Phase II clinical trial for ONCONASE® for the treatment of non-small cell lung cancer in patients who have reached maximum progression on their current chemotherapy regimens. Although the financing we received in October 2009 will enable us to initiate this Phase II clinical trial, we will be required to obtain additional financing to complete this clinical trial and pursue further development of ONCONASE®. We cannot assure you that we will be able to commence or complete the new Phase II clinical trial for ONCONASE®, or that the results from this clinical trial will be positive. Even if the results from this Phase II clinical trial are positive, we cannot assure you that the results of subsequent Phase III clinical trials will be positive or will support marketing approval of ONCONASE® in the United States or in any other jurisdictions.





We will need additional financing to continue operations, which may not be available on favorable or acceptable terms, if it is available at all.





Based upon our current operations and our plans for a Phase II clinical trial for ONCONASE® for the treatment of non-small cell lung cancer in patients who have reached maximum progression on their current chemotherapy regimens, we expect that our current cash reserves should be sufficient to support our activities through April 2011.   Although our current cash reserves will enable us to initiate this Phase II clinical trial, provided we obtain the required approval from the FDA, we will need to obtain additional financing to complete the clinical trial and pursue further development of ONCONASE®.  As a result of our continuing losses and lack of capital, the report of our independent registered public accounting firm on our July 31, 2009 audited financial statements included an explanatory paragraph which states that our recurring losses from operations and negative cash flows from operating activities raise substantial doubt about our ability to continue as a going concern.  Our financial statements at July 31, 2009 do not include any adjustments that might result from the outcome of this uncertainty.  We will need additional financing to conduct our business after April 2011.  Factors that would affect our ability to obtain capital in the future and the amount and timing of additional capital required include, but are not limited to, the following:




29





·
the condition of the capital markets in general and the willingness of investors to invest in development stage biotech companies, in particular;


·
the progress and cost of research and development and clinical trial activities relating to our drug product candidates;


·
the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our patent claims and other intellectual property rights and investigating and defending against infringement claims asserted against us by others;


·
the emergence of competing technologies and other adverse market developments;


·
changes in or terminations of our existing licensing, marketing and distribution arrangements;


·
the amount of milestone payments we may receive from current and future collaborators, if any;


·
the cost of manufacturing scale-up and development of marketing operations, if we undertake those activities;


·
our degree of success in commercializing our drug product candidates, including entering into additional marketing and distribution agreements; and


·
our ability to obtain marketing approval of our product candidates.




Additional financing may not be available when we need it or be on terms acceptable to us. If adequate financing is not available or we are unable to conclude a strategic transaction prior to the time our current cash reserves are exhausted we will be required to cease operations.  If additional capital is raised through the sale of equity, our stockholders’ ownership interest could be diluted and such newly-issued securities may have rights, preferences, or privileges superior to those of our other stockholders. The terms of any debt securities we may sell to raise additional capital may place restrictions on our operating activities.





A few significant stockholders control the direction of our business.  If the ownership of our common stock continues to be highly concentrated, it will prevent other shareholders from influencing significant corporate actions.





The ability of other shareholders to influence corporate matters may be limited because a small number of stockholders beneficially currently own a substantial amount of our common stock.  As of March 12, 2010, Mr. Muniz owns approximately 31.7% of our common stock; Knoll Capital Management LP, Fred Knoll and Europa International, Inc. own a total of 29.8% of our common stock; each of McCash Family Limited Partnership, and James O. McCash and James O. McCash Trust, own 9.9% and 6.1% of our common stock, respectively; and Unilab LP owns   approximately 10% of our common stock.  Our significant shareholders will be able to exert a significant degree of influence over our management and affairs and all actions requiring stockholders approval, such as the election of directors and approval of significant corporation transactions.




30





In addition, Delaware corporate law provides that certain actions may be taken by consent action of stockholders holding a majority of the outstanding shares. In the event that the requisite approval of stockholders is obtained by consent action, without any meeting of stockholders, dissenting or non-participating stockholders generally would be bound by such vote. Through their concentration of voting power, our significant shareholders could delay, deter or prevent a change in control of our company or other business combinations that might otherwise be beneficial to our other stockholders. Accordingly, this concentration of ownership may harm the market price of our common stock. In addition, the interest of our significant stockholders may not always coincide with the interest of the Company’s other stockholders. In deciding how to vote on such matters, they may be influenced by interests that conflict with our other shareholders.





We are subject to penny stock rules.  As a consequence, sale of our stock by investors may be difficult.





The term “penny stock” generally refers to low-priced speculative securities of very small companies. We are subject to the SEC's penny stock rules.





Before a broker-dealer can sell a penny stock, SEC rules require the firm to first approve the customer for the transaction and receive from the customer a written agreement to the transaction. The firm must furnish the customer a document describing the risks of investing in penny stocks. The firm must tell the customer the current market quotation, if any, for the penny stock and the compensation the firm and its broker will receive for the trade. Finally, the firm must send monthly account statements showing the market value of each penny stock held in the customer's account.





Penny stocks may trade infrequently, which means that it may be difficult to sell our shares once you own them. Because it may be difficult to find quotations for certain penny stocks, they may be impossible to accurately price. Investors in penny stocks should be prepared for the possibility that they may lose their whole investment.





Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds





(a)  Recent Sales of Unregistered Securities





None.




(b) Purchases of Equity Securities by Issuer and Affiliated Purchasers





None.





Item 3.    Defaults Upon Senior Securities





None.





Item 4.   Reserved





None.




31





Item  5.  Other Information





None.





Item 6.   Exhibits





Exhibits (numbered in accordance with Item 601 of Regulation S-K).




ExhibitNo.

Item Title3.1

Certificate of Amendment to the Certificate of Incorporation of the Company, dated April 27, 2010 (incorporated by reference as an exhibit to the Company's Current Report on Form 8-K, filed on April 30, 2010) *31.1

Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1

Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

Previously filed; incorporated herein by reference.




32





SIGNATURE PAGE




Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.





TAMIR BIOTECHNOLOGY, INC.(Registrant)June 14, 2010

/s/ Charles MunizChief Executive Officer, President and Chief Financial Officer(Principal Executive Officer, Principal Accounting Officer and Principal Financial Officer)